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PRIME CONCERN
Why are banks allowed to mislead consumers?  I have a credit card that told me I was paying zero percent interest. Of course. I pay my balance if any in full each month. Then, I asked what my interest actually would be if I didn't pay my balance in full. It is: 6 percent above the prime. Who's prime? The bank's prime which happens to be 9 percent. The prime is not the prime? What dogs!  — Carol D., El Reno, Okla.

The phrase "prime rate" dates back to the days when businesses did most of their borrowing from banks -– and the best customers got the “prime” rate. (Those days are long gone -- most big companies today borrow in the capital markets by selling their own bonds or what's called "commercial paper" -- basically, short-term loans. Smaller companies can set up lines of credit -- sometimes below prime.)

But the name stuck. It now refers to a benchmark lending rate that is raised or lowered as the Federal Reserve adjusts the rate it charges banks' when they borrow, the so-called "discount rate." The "consensus" prime rate today is 6 percent (what most banks charge), according to the Wall Street Journal. But every bank is free to set its own prime.

Banks then mark up that rate for commercial and consumer lending, adding another point or two (or, in your case, six) depending on the type of loan. Because credit card lending is "unsecured" (the bank can't exactly repo the movie ticket or dinner you just charged on your card), credit card rates are the highest.

Banks defend themselves from complaints that their marketing is deceptive by pointing to the multi-page, microscopic-print document that eventually shows up in the application process. And they've got a point: they do spell out all the ugly details. (On the Web, it's that multi-screen page where you click "I accept.") Often written by lawyers for lawyers, these dense disclosures are rarely read through by credit card customers. And banks know this. Most customers assume that the marketing pitch they get in the friendly brochure -- touting "low rates" and explaining how "easy" is to use your shiny new card -- tells the whole story. It doesn't.

If you do wade into the full disclosure, you’ll see all the nasty terms and conditions that apply to your account -– including things like otherwise undisclosed fees and the bank’s right to jack up your rate if you’re so much as an hour late with a single payment. If you do, you're technically in "default." If so, get ready for your rate to skyrocket. Citibank, one of the biggest credit card issuers, currently charges a default rate on cash advances equal to the prime rate plus up to 23.99 percent, or roughly 30 percent interest. That's a pretty nice vig.

Often, there's a clause in the terms and conditions statement that gives the bank the right to change the rates, fees, and terms of your account "at any time for any reason." Reading through this disclosure document may be tough sledding, but you should give it your best shot.
Make the guy at the bank who's taking your application wait while you do, explaining each and every clause you don't understand. Even if you're there for an hour, you should be clear on these terms before you sign. And if the bank officer tries to rush you along, get up, thank them for their time, and find another bank. Unfortunately, you'll see the same nasty terms and conditions almost wherever you go. But at least you understand what you're dealing with.

And, as always, shop around. My favorite web site for rate shopping is Bankrate.com.

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